The computer industry-focused financial institution Silicon Valley Bank, whose collapse earlier this month rattled the banking sector and sent shockwaves throughout the world, will be purchased by North Carolina-based First Citizens.
Although the Federal Deposit Insurance Corp. and other regulators had already taken extraordinary measures to head off a wider banking crisis by guaranteeing those depositors in SVB and another failed U.S. bank would be able to access all of their money, the agreement could reassure investors at a time when confidence in banks has been shaken.
Clients of SVB will instantly become customers of Raleigh-based First Citizens. The FDIC said that the 17 former SVB locations will reopen as First Citizens locations on Monday.
In premarket trading on Monday, First Citizen BancShares Inc. shares, which are traded on the Nasdaq, increased 12.4% to $654.95. Shares of the mid-sized First Republic Bank in San Francisco, which has a comparable clientele to Silicon Valley Bank and had appeared to be in a comparable difficulty, soared 24.3% in premarket trade.
European shares started the week higher on Monday, led by gains from BNP Paribas and Commerzbank AG of Germany.
Investors are concerned that other banks may fail as a result of rising interest rates. A lot of attention was paid to Deutsche Bank on Friday, whose stock fell 8.5% in Germany but was up roughly 3.6% in early trade on Monday. Earlier this month, regulators mediated a takeover by rival UBS after shares and confidence in the Swiss bank Credit Suisse plummeted.
SVB, a Santa Clara, California-based bank, failed on March 10 as a result of depositors scrambling to get their money out of the institution out of concern for its stability. After Washington Mutual’s failure in 2008, it was the second-largest bank failure in American history. With the third-largest bank failure in American history, regulators seized New York-based Signature Bank two days later.
In both instances, the government agreed to pay for deposits, even those that were higher than the $250,000 federally insured cap, allowing depositors to get their money.
In a $2.7 billion agreement last week, New York Community Bank agreed to purchase a sizeable portion of Signature Bank, but it took longer to find a buyer for SVB.
11 of the largest banks in the nation announced a $30 billion rescue package after terrified investors sold off a large portion of their stock in First Republic Bank. First Republic now has a safety net as it apparently looks for a buyer thanks to the money.
According to the FDIC, all of Silicon Valley Bank’s deposits and loans will be sold to First-Citizens Bank and Trust Co. as part of the sale of the bank, which was announced late Sunday.
The purchase offers the FDIC $500 million worth of First Citizens shares. According to the FDIC, First Citizens and the FDIC will split losses and any recoveries on loans covered by a loss-share agreement.
Of the $167 billion in total assets held by Silicon Valley Bank as of March 10, the FDIC will keep around $90 billion, while First Citizens will purchase $72 billion at a discount of $16.5 billion. According to the report, Silicon Valley Bank’s bankruptcy will cost the Deposit Insurance Fund, which is backed by the financial sector, around $20 billion.
First Citizens Bank, which claims to have more than $100 billion in total assets and more than 500 locations in 21 states, was formed in 1898. In the most recent quarter, it posted a net profit of $243 million. It claims to be the largest family-controlled bank in the nation and is one of the top 20 banks in the United States.
